For years, the narrative has been that President Donald Trump’s 2017 corporate tax cuts led corporations to squander their tax savings on stock buybacks. Even Trump himself admitted this in a rare moment of candor. However, a new report by Americans for Tax Fairness reveals a more complex picture.
Corporate Spending: Dividends and Buybacks
Between 2018 and 2022, the wealthiest Fortune 500 corporations spent an average of seven times what they paid in taxes on dividends and stock buybacks. These companies spent slightly more on dividends and buybacks ($4.39 trillion) than they earned in profits in the United States ($4.36 trillion). This shareholder-centric behavior has led to a significant decline in public trust. In 2001, nearly half the country (48 percent) was satisfied with the influence of major corporations, according to Gallup. Today, that number has plummeted to 24 percent.
Gerald F. Davis, a professor of management at the University of Michigan, argues that corporations have become too weak rather than too powerful. The American corporation of the 1950s and 1960s was self-financed and capable of reaching beyond financial goals to create an independent culture. Today, corporations are more like ATMs for hedge funds, mutual funds, pension funds, and other institutional investors.
The Americans for Tax Fairness study examined 280 profitable companies over five years, representing 56 percent of all Fortune 500 companies. These companies collectively paid $608 billion in taxes but spent $4.4 trillion on dividends and buybacks. This shareholder-payout binge included $2.7 trillion in stock buybacks, which were considered an illegal form of stock manipulation until 1982.
Buybacks raise stock prices, often benefiting chief executives whose compensation is tied to stock performance. Many buybacks are “leveraged buybacks,” putting the company in debt rather than the shareholders. This behavior undermines the corporation’s ability to govern itself.
The Tax Implications
The dollars returned to shareholders through dividends and buybacks are worth more than wages because they are taxed at a lower rate. Trump’s 40 percent corporate tax cut has two detrimental effects: it reduces Treasury revenue from corporations and shifts money to shareholders who pay lower taxes on it. According to the study, three-quarters of all American stocks are held in tax-exempt or tax-advantaged accounts.
Corporate taxes are currently too low. Trump lowered the top corporate tax rate from 35 percent to 21 percent, while Congressional Republicans aim for 15 percent. Biden proposes raising it to 28 percent, which could generate $1.3 trillion over ten years. The 2022 Inflation Reduction Act introduced a 1 percent tax on stock buybacks, which Biden wants to increase to 4 percent, potentially generating $166 billion over the next decade.
Biden also proposes taxing capital gains and dividends at the same rate as labor income for capital income above $1 million and eliminating the “angel of death” loophole for inheritances over $10 million. These measures aim to liberate corporations from Wall Street’s grip, requiring increased financial regulation and stronger labor unions.
Corporate leaders may resist these changes, but their objections often reflect the demands of their institutional investors rather than their own interests.
